What is Blockchain?
Blockchain technology sets up a database by building several blocks in a specific order and following certain rules. In this block, information from one cell is sent to the next. This technology is based on the principle of decentralization. That is, the base is not in one place but in all the computers of the system participants that form the network. In this way, the blocks cannot be replaced or hacked, which would require hacking all the computers.
This technology has many benefits, such as being easy to use, quick, safe, and clear. Say a deal happened on the blockchain network. Details about it will be stored on a million computers, so they can’t be recovered and changed.
Blockchain technology underlies the operation of cryptocurrencies.
Types of Blockchain Technology
We explained in simple words what blockchain technology is. Take a look at the most common types now:
Public Blockchain: Any user can view the chain, make transactions, and so on. This type is considered entirely decentralized.
Consortium Blockchain: A specific set of groups controls the process. For example, access can be granted to 15 organizations at once; for the submitted block to be valid, ten must sign it. Everyone or a limited number of participants can read the chain. This type is considered partially decentralized.
Fully Private Blockchain: Has a limited level of access to information. Confirmation of transactions, auditing, and other opportunities are available to a narrow circle of people.
Any organization using blockchain in business processes can choose the appropriate type precisely for its activities.
What Is A Blockchain Wallet?
Your blockchain wallet is a unique piece of software that helps you manage, store, and do other exciting things with digital assets, especially cryptocurrency. When registering a wallet, a person gains access through an open (public) and private key – a cryptographic code. The wallet stores records of the account status of its owner and the entire transaction history. At the same time, the cryptocurrency is not stored directly in the wallet; it only contains information about public and private keys, and the coins are stored in the blockchain. Most often, blockchain wallets are anonymous.
Where Is The Blockchain Located?
The blockchain is located on all computers built into the system. This is its essence – every user has access to a decentralized system.
How New Blocks Are Created And Verified
Technically, mining looks like this. The computer calculates the hash of the block header, which, as you know, includes the soup of the title of the previous block, the set of transactions being processed, plus a random number. If the calculated hash value is less than the current target, a new block is formed – the miner receives Bitcoins (25 coins just created). If the value is less, the random number is changed, and a new hash is calculated. Such operations are carried out billions of times per second on every computer in the system. They require a lot of computing power. And there is an inverse relationship: the more computers in the network that perform calculations, the higher the complexity of the calculations. Accordingly, the less each miner will receive. But the more the network security will increase.
How Information Is Served
Depending on the specifics of the system, information maintenance can be of two types:
Centralized: Information is stored on a server or group of servers, and all system participants can access it from their PCs.
Decentralized: In this case, information is stored simultaneously on all computers included in the system without the participation of a central server. Bitcoin and other cryptocurrencies belong to this type.
Benefits of Blockchain
Security: Information on blockchain platforms is stored as copies on all devices connected to the network. This makes it resistant to attacks and physical damage from its carriers. In addition, cryptographic protection and hashing make it extremely difficult (virtually impossible) to tamper with or delete data intentionally.
Transparency: All actions performed on information on the blockchain are recorded and stored in a hash. Therefore, they can be easily tracked over time. This is especially useful in areas such as electronic payments or logistics.
Automation: Most blockchain platforms operate in a fully automatic mode. This makes transactions more convenient and faster without requiring additional resources to ensure control.
Where Is Blockchain Used?
Blockchain is used in all areas where speed of information transfer with a high degree of protection is required. The technology is used to launch and operate cryptocurrencies and digital currencies when concluding intelligent contracts for the supply of goods and generating non-fungible tokens (NFTs) in the banking and legal fields, network administration, and the gaming industry. Blockchain technologies are used in the work of government bodies (for example, when conducting and processing the results of referendums and voting) in the activities of public and non-public corporations, public organizations, and individuals.
Any cryptocurrency operates based on blockchain technology. The technology is used both in the emission (release) of new cryptocurrencies, the generation of new tokens (coins), and in settlements with existing ones. There are now more than 300 cryptocurrency projects in the world. The most popular ones besides Bitcoin are Ethereum, Ripple, Tether, Litecoin, and Dogecoin.
Payments in cryptocurrencies are used by payment systems PayPal and Square and one of the largest international banks, JP Morgan. Cryptocurrencies tend to have high volatility. There are exchanges set up just for people who want to buy in cryptocurrencies.
Some countries are launching pilot projects to create national digital currencies powered by blockchain technology. China has achieved good results – the digital yuan became the first digital currency adopted in a large global economy.
Central bank digital currencies (CBDC) were also launched by the Central Bank of the Bahamas (sand dollar), the Eastern Caribbean Central Bank (DCash), and the Central Bank of Nigeria (e-naira). The governments (or central banks) of the Netherlands, Japan, Russia, Kazakhstan, and Ecuador have announced plans to issue their national digital currencies.
Blockchain technology allows smart contracts to be concluded. Smart contracts are entirely digital contacts, information about which is protected by encryption. Their fundamental difference is the automatic control and implementation of contract clauses. If the conditions are met, the contract ends automatically, without additional actions or the participation of lawyers. Smart contracts allow you to track the entire supply chain, which reduces or eliminates the possibility of counterfeiting or illegal activities with products.
NFT is a type of token where each copy is unique and cannot be replaced or exchanged for another token. NFT indicates ownership of any asset in the blockchain and allows you to sell and buy virtual objects: music, photographs, paintings, and drawings. According to statistics from the analytical portal NFTgo, the capitalization of the NFT market is almost $22 billion.
Another area of blockchain application is the gaming industry. Based on cryptocurrency technologies, GameFi projects are being implemented (from – “game” and finance – “finance”), combining game mechanics and NFTs. These online games record everything that happens in the game in transactions on the blockchain and allow players to earn real money. Using the blockchain, you can purchase and sell virtual characters and artifacts.
DeFi and more
The new decentralized finance (DeFi) industry is using blockchain technology. Security tokens and other novel forms of digital asset investment are also attracting attention from investors.
How Do Payment Methods Work on the Blockchain?
At least two types of means of payment can be distinguished. First, these are traditional non-state cryptocurrencies, such as ether and bitcoin, with a multi-billion dollar capitalization (if measured in “traditional” fiat US dollars).
The second type central bank cryptocurrencies are often attempts by fiat government issuers to pour “new wine into old wineskins”: to present a new form of earning seigniorage, i.e., issuing government currency, as something super fashionable and progressive. Only a few projects for issuing CBTS today provide for a truly decentralized nature of their issue.
Is Blockchain Technology Reliable?
Blockchain technology has a high degree of security but several weak spots. Even with diffusion and decentralization, hacker attacks are still a possibility. Malicious actors with access to powerful computers could work together to alter the blockchain.
In addition, there is a risk of losing assets due to online fraud. The loss of the private hash key to access the blockchain wallet leads to the loss of support, that is, a direct loss of funds.
Blockchain is a technology for encrypting and storing data distributed across many computers connected to a shared network. Records in the blockchain are presented in the form of blocks interconnected by unique keys.
The technology stores and transfers digital assets and can operate on both a public and private network. Blockchain can be used in many areas where fast information transfer with high protection is required. Any cryptocurrency works based on blockchain technology. Blockchain also allows for smart contracts and the issuance of NFTs.
Blocks in a blockchain, such as when issuing cryptocurrencies, are created through a mining procedure. The creation of blocks in large networks is carried out by special individuals – miners.
A blockchain wallet is used for accounting, storage, and other actions with digital assets – a unique program that stores records about its owner’s account status and the entire transaction history.
Blockchain is a powerful tool that has the potential to disrupt many industries. It provides security, transparency, and decentralization, making it attractive to developers and users. At the same time, specific problems need to be solved to use the full potential of blockchain.